Don't let it get away!

The excitement over A123 Systems' (Nasdaq: AONE) potential seems to have worn off. Investors are getting tired of potential and want to finally see some actual results. The company's fourth-quarter earnings report didn't ease any fears with an astonishing $85 million loss. To put that in perspective, the company's entire market cap is $251 million, just over three times what the company lost in one quarter.

The disappointment at Fisker and the generally disappointing ramp-up of electric vehicles has been well documented, but let's focus on one thing today: Can A123 Systems survive?

The balance sheetA balance sheet that was once flush with cash has taken some real hard hits recently. Cash is down to $186.9 million and inventory is an incredible $103.4 million. The company also added debt this year, now totaling $202 million between short- and long-term debt.

Cash burnCompanies don't go bankrupt because they're posting net losses, they go bankrupt because they run out of cash. So A123's cash burn rate is important.

During 2011 the company's operating cash burn was $251.6 million, up from $127.8 million the year before. So, even if we assume a generous 25% margin on incremental revenue, the company would have to increase sales by $1 billion to make it to cash flow positive. To do that in five years, the company would have to grow at an annual rate of 48.9% and would probably run out of cash in the meantime.

The company is also adding debt, so it needs to generate even more cash to cover payments to debt holders.

The light at the end of the tunnel?A123 Systems has an impressive lineup of partners that should give it some hope for the future. General Motors (NYSE: GM) has signed up the company to make batteries for the Chevy Spark, which is due to launch in 2013. Tata Motors (NYSE: TTM) will get complete battery packs from the company for electric transit buses and other commercial vehicles. BMW, Smith Electric, Navistar, and many more have also partnered with the company.

The question is: Will demand pick up soon enough for A123 to survive? I'm not making any bets that it will happen. A123 Systems and battery makers have shown me the only thing they're good for is disappointment, and that makes A123 Systems a perfect underperform candidate for my CAPS profile. So I'm adding an underperform CAPScall today.

Interested in reading more about A123 Systems? Click here to add it to My Watchlist, which will find all of our Foolish analysis on this stock.

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

So to all those partnering companies really think A123 is going belly up? That makes no sense. So there must be a plan that keeps them afloat. Thriving? Not likely but they may stick around without going belly up. I'll spend some gambling money on them.

As of Jan. 30, 2013, A123 research side acquired by Navitas Systems: "The original issue with CFIUS was the fact that there was this developmental group that was servicing government contracts," Golab said. "Wanxiang's approach to this was to acquire all assets, excluding these particular pieces. This is really a good fit for us from a history standpoint where we believe our strengths are in terms of not only research and development, but working with military on emerging applications." "

Held shares bought at under a penny, hoping to see something good happen in environmental terms. But as a "green" investor, dislike this development on principle.